SolarCity: A Fantastic Opportunity

SolarCity (SCTY) announced third quarter ended September 30, 2015 total revenue of $113.8 million, up 95 percent year-over-year from $58.3 million during the same period last year.

SolarCity declared third quarter of 2015 net loss from operations of $191.1 million compared to total operating loss of $74.3 million in third quarter of 2014.

The solar energy production and distribution company reported continued year-over-year improvement in its top line growth primarily driven by a major shift of customers towards using clean fuels, encouraging them to develop green houses and installing solar panels on the roof to generate electricity, thus benefiting the solar power producing company.

What’s working?

Solar Power is believed to be hugely competitive in a major part of the U.S. with average U.S. retail electricity price of approximately $0.13/kWh and 583 TWh of energy consumed at this price or greater.

The overall U.S. residential and commercial electricity sales reached or exceeded $0.13/kWh level and surpassed $90 Billion during 2014.

Crucially, SolarCity has achieved over $400 of average annual savings in California with no upfront installation costs needed. The company has delivered low-cost solar energy in $/kWh compared to that asked by the local body. SolarCity’s solar agreements usually deliver 50% to 90% of the customer’s yearly electricity requirements and enable customers to save approximately 20% from the day installed.

A lot of opportunity

The residential housing sector seems to be a significant and unexplored growth opportunity for SolarCity with net addressable expansion opportunity in the existing states exceeding 240 GW in addition to total growth prospects in the U.S exceeding 550 GW. Residential sector growth opportunity depicts 1.3 GW or about 78% of the company’s total MW installed till the end of third quarter of 2015. SolarCity has notable untapped growth opportunity with expansion prospects for over 40 million single-family homes in 19 key states and more than 92 million throughout the nation.

Going forward, commercial segment portrays significant expansion opportunity for SolarCity with the company already having installed approximately 375 MW of solar facilities by the end of third quarter of 2015, serving more than 2,000 commercial and key government customers. Some of the major customers of SolarCity include Wal-Mart, Walgreens, Safeway, Intel, HP, eBay, DirectTV, and over 400 schools. The cumulative customer count for SolarCity has increased at a CAGR of 94% since the conclusion of fiscal year 2012 and the company had nearly 288,992 cumulative energy agreements till the conclusion of third quarter of 2015. SolarCity has generally greater visibility into its top line growth with key agreements usually of nearly 20 years for PPAs/leases and about 30 years for loans.

The ongoing shift of energy consumption pattern from non-renewable energy sources to renewable energy sources such as, solar power to drive both residential and commercial projects is believed to deliver sustainable long-term company growth and thus, benefit the key stakeholders.

SolarCity in total and by the end of third quarter of 2015 has installed 1.7 GW of power capacity with overall installed MW capacity having grown cumulatively at a rate of 69% since the fiscal year 2011. SolarCity has grown its quarterly installed power capacities in MW by 80% compounded annual growth rate since third quarter of 2013 till third quarter of 2015. Moreover, the company projects to install about 878 MW to 898 MW of power generation capacities during 2015 and nearly 1,250 MW during 2016.

SolarCity is believed to be a leading player in residential installations for the U.S. with the company’s residential MW installations surpassing the major 36 competitors together during the second quarter of 2015. The company is also implementing differentiation through establishment of superior brand, vertical integration and significant scale. SolarCity’s U.S. retail electricity sales are near to $60 billion at the company’s mixed agreement price of approximately $0.13/kWh. This notable opportunity is estimated to grow as the costs continue to decline with the expanding retail utility rates.

Conclusion

Overall, the investors are advised to “Hold” their position in SolarCity Corporation considering the company’s notable growth prospects and the currently weaker cash position with smaller total cash of $418.37 million against significant total debt of $2.45 billion, restricting the company to make future growth investments. The profit margin of -18.69% indicate no profit but loss. The PEG ratio of 2.19 seems satisfactory and signifies healthy company growth.